Economic Integration

Question 1

Economic Integration definition

Answer 1

agreement among countries to reduce / abolish trade barriers (protectionism) and promote free trade and to coordinate monetary and fiscal policies.

Question 2

List the types of economic integration (increasing in integration as you go down)

Answer 2

1) Free trade area.
2) Customs union.
3) Monetary union (currency union).
4) Economic union.
5) Economic and monetary union.
6) Complete economic and monetary union

Question 3

Free Trade Area

Answer 3

a group of countries (trade bloc) that promote free trade between themselves but have their own trade barriers against other countries.
etc. North American Free Trade Agreement (NAFTA)

Question 4

Customs Union

Answer 4

a group of countries (trade bloc) where there is free trade between themselves and they impose a common external tariff on non-members.
etc. East African Community

Question 5

Monetary Union (currency union)

Answer 5

a group of countries that share a common currency and may also have a common monetary policy (but not always).
etc. Eastern Caribbean Dollar

Question 6

Economic Union

Answer 6

a group of countries (trade bloc) where there is free trade, a common external tariff and some common economic policies over rules and regulations. There may be a common currency but it is not necessary for all members to use it.
etc. European Union (19 out of 28 members use a common currency)

Question 7

Economic and Monetary Union

Answer 7

Economic and monetary union = Economic union + Monetary union

• Trade bloc with free trade.
• Common external tariff on non-members.
• Common economic policies regarding rules and regulations.
• Single currency.
• Common monetary policy.

Question 8

Complete Economic and Monetary Union

Answer 8

• Trade bloc with free trade.
• Common external tariff on non-members.
• Common economic policies regarding rules and regulations.
• Single currency.
• Common monetary policy.
• Common fiscal policy.

Question 9

Trade Creation

Answer 9

the creation of new trade as a result of the reduction or elimination of trade barriers.

Question 10

Impacts of Trade Creation

Answer 10

• When a trading bloc is created, trade barriers are eliminated.
• Businesses take advantage of new opportunities in new markets due to free trade.
• There will be increased international specialisation
  and trade according to comparative advantage.
• High cost domestic production is replaced by more efficient low cost products from other member countries inside the trade bloc.

Question 11

Trade Diversion

Answer 11

where a certain amount of trade is lost as a result of the imposition of trade barriers.

Question 12

Impacts of Trade Diversion

Answer 12

Members of a trade bloc are:

• more likely to trade with each other (no trade barriers).
• less likely to trade with non-members (trade barriers).
• Efficient countries outside the trade bloc suffer as they do not compete on equal terms.
• Members of the trade bloc are unable to buy at the cheapest price from non-members.

Question 13

Free Trade

Answer 13

international trade without protectionism (trade barriers).

Question 14

Benefits of free trade

Answer 14

• Increased international specialisation as countries exploit their comparative advantage.
• Trade creation occurs.
• Increase in output (shown using the trading possibility curve - next slide).
• Increase in economic growth.
• Resources are allocated more efficiently.
• Improved standard of living and quality of life.

Question 15

Trade liberalisation

Answer 15

the removal of protectionist measures (trade barriers).